News Facts

In the third quarter of 2010, 33 percent of homeowners who refinanced their first-lien home mortgage lowered their principal balance by paying-in additional money at the closing table. This is the second highest "cash-in" share since Freddie Mac began keeping records on refinancing patterns in 1985. The revised cash-in share in the second quarter was 23 percent.

"Cash-out" borrowers, those that increased their loan balance by at least 5 percent, represented 18 percent of all refinance loans; this is the lowest cash-out share since the analysis began in 1985. The higher cash-in share in combination with low cash-out refinancing activity brought the net dollars of home equity converted to cash to the lowest level in 10 years. In the third quarter, an estimated $7.4 billion in net home equity was cashed out during the refinance of conventional prime-credit home mortgages, down from $9.4 billion in the second quarter and less than 10 percent of the peak cash-out volume of $84 billion in the second quarter of 2006.

The main causes of the decline in cash-out refinancing were reduced home prices, tighter underwriting standards for loan-to-value ratios, and borrowers’ desire to pay down debt. Among the refinanced loans in Freddie Mac’s analysis, the median appreciation of the collateral property was a negative 3 percent over the median prior loan life of 3.8 years.

The median interest rate reduction was about 1 percentage point, or at least 18 percent. Over the first year of the refinance loan life, these borrowers will save over $1,400 in principal and interest payments on a $200,000 loan.

"When rates fall to new lows we typically see more ‘rate and term’ refinancers, who are looking only to reduce their interest payments, and relatively fewer cash-out borrowers. But now we’re also seeing a very large share of borrowers reduce their mortgage debt when they refinance. Consumer debt across the board is down since the start of the recession, with non-mortgage consumer debt falling more than 5 percent since 2008, according to the Fed."

Cash-out Refinance Analyses Information

These estimates come from a sample of properties on which Freddie Mac has funded two successive conventional, first-mortgage loans, and the latest loan is for refinance rather than for purchase. The analysis does not track the use of funds made available from these refinances.

Quarterly Refinance Statistics

Percentage of Refinances Resulting in:

Descriptive Statistics on Loan Terms and Property Valuation

Quarter

5% Higher Loan Amount1

No Change in Loan Amount

Lower Loan Amount

Median Ratio of New to Old Rate2

Median Age of Refinanced Loan (years)

Median Appreciation of Refinanced Property

200104

47%

34%

19%

0.84

2.8

14%

200201

61%

29%

10%

0.86

3.4

18%

200202

63%

26%

10%

0.88

3.4

20%

200203

44%

37%

19%

0.84

2.9

13%

200204

40%

38%

22%

0.82

2.4

11%

200301

41%

46%

13%

0.81

1.9

7%

200302

33%

52%

15%

0.79

1.7

4%

200303

34%

49%

17%

0.78

1.7

5%

200304

44%

35%

21%

0.82

2.2

12%

200401

42%

44%

14%

0.82

2.0

6%

200402

43%

43%

14%

0.83

2.0

8%

200403

60%

25%

15%

0.88

2.5

17%

200404

57%

24%

19%

0.88

2.2

16%

200501

64%

26%

10%

0.89

2.4

18%

200502

72%

19%

9%

0.92

2.5

23%

200503

73%

17%

10%

0.93

2.6

24%

200504

81%

11%

8%

0.98

2.9

29%

200601

86%

9%

5%

1.02

3.0

31%

200602

88%

7%

4%

1.08

3.2

34%

200603

88%

7%

5%

1.10

3.3

33%

200604

82%

11%

7%

1.04

3.3

28%

200701

83%

13%

5%

1.02

3.4

25%

200702

84%

11%

5%

1.02

3.5

24%

200703

86%

9%

5%

1.09

3.9

26%

200704

77%

15%

9%

1.02

3.6

19%

200801

58%

33%

9%

0.90

2.4

8%

200802

67%

24%

9%

0.94

3.3

13%

200803

76%

15%

9%

1.04

4.4

16%

200804

55%

28%

17%

0.92

3.1

7%

200901

43%

44%

13%

0.81

3.1

3%

200902

37%

47%

16%

0.80

3.5

1%

200903

36%

46%

18%

0.83

3.5

0%

200904

24%

40%

36%

0.84

3.6

-2%

201001

28%

54%

19%

0.84

4.0

-4%

201002

25%

52%

23%

0.84

4.0

-5%

201003

18%

49%

33%

0.82

3.8

-3%

Notes:1"Higher Loan Amount" refers to loan amounts that were at least 5 percent greater than the amortized unpaid principal balance (UPB) of the original loan. "No Change In Loan Amount" refers to loans on which the principal balance was unchanged during refinance or loans that increased less than 5 percent of the original loan balance due to the inclusion of closing costs for the refinance. "Lower loan amount" refers to loan amounts that were less than the amortized UPB of the original loan. These three columns may not sum to 100% due to rounding.

2Ratio of new to old rate refers to the ratio of the interest rate of the new loan to the interest rate of the refinanced loan. Refinanced loans with adjustable-rate products are excluded.

Quarterly Cash-Out Volume For All Prime Conventional Loans

Year

1. Total Cash-Out Dollars as a Percentage of Aggregate Refinanced Originations UPB

Column 1. Indicates the share of newly refinanced mortgage debt balances that are due to equity-extraction through a cash-out refinance. It is the ratio of the value in Column 2 divided by our estimate of the refi dollar volume of prime first-lien mortgage originations.

Column 2. Indicates the dollar volume of equity cashed-out through the refinancing of prime, first-lien conventional mortgages. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and the values in Column 1 of this sheet. We do not estimate how much equity is taken out through the refinance of FHA or VA loans or through refinance loans originated in the subprime market.

Column 3. Indicates the total increase in the principal balances of refinanced first-lien mortgages due to the consolidation of existing second mortgages or home-equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans that were not due to new equity extraction.

Column 4. Indicates the total increase in the principal balances of refinanced first-lien mortgages, inclusive of cash-out amounts, the consolidation of existing second mortgages or Home-Equity lines of credit into the first lien, and loan origination costs that are rolled into the principal balances. It is calculated using Freddie Mac's estimate of prime, conventional mortgage originations volume, the refi share of originations, and of the average increase in the principal balance from refinanced loans.

(E). Indicates the value is an estimate and is subject to revision. The primary sources of any revisions are adjustments to Freddie Mac's estimate of total refinance mortgage originations in the prime, conventional mortgage market.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation's residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Over the years, Freddie Mac has made home possible for one in six homebuyers and more than five million renters.